REVIEW OF ANNEX C OF THE INTERNATIONAL COCOA AGREEMENT, 2010

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2 Page 1 REVIEW OF ANNEX C OF THE INTERNATIONAL COCOA AGREEMENT, 2010 BACKGROUND INFORMATION INTRODUCTION 1. Article 39 of the International Cocoa Agreement (ICA), 2010 stipulates that the International Cocoa Council shall, at its first session following the entry into force of this Agreement, review Annex C of this Agreement and, if necessary, revise it, determining the proportions in which the countries listed therein produce and export exclusively or partially fine or flavour cocoa. Thereafter, the Council may at any time during the lifetime of this Agreement review Annex C and, if necessary, revise it. To this effect, the Executive Director of the International Cocoa Organization (ICCO) has invited experts in the production and marketing of fine or flavour cocoa to participate in a meeting of the Ad hoc Panel on Fine or Flavour Cocoa (the Panel ), in September 2015, to review Annex C of the ICA, 2010, and to advise the Council accordingly. 2. The recommendations made on the fine or flavour status of each country to be reviewed by the Panel will be based on the expertise and experience of its members. The purpose of this document is to assist the Panel in determining the most appropriate proportions of fine or flavour cocoa exported by the countries listed in the revised Annex C of the ICA, This document provides some background information on the production and marketing of fine or flavour cocoa and summarizes the work done in this area by the ICCO Secretariat. It also provides some statistical indicators on the cocoa trade of the countries listed in the revised Annex C of the ICA, It is acknowledged that, so far, there is no methodology to determine the exact proportions of fine or flavour cocoa exported by each country. HISTORY OF THE CLASSIFICATION OF FINE OF FLAVOUR COCOA PRODUCING COUNTRIES 4. The share of fine or flavour cocoa in the production of cocoa beans of individual countries has developed over time. Indeed, successive International Cocoa Agreements have recognized producing countries exporting either exclusively or partially fine or flavour cocoa. The list of countries and their proportions of production of fine or flavour cocoa under the successive International Cocoa Agreements of 1972, 1975, 1980, 1986, 1993, 2001 and 2010 are reproduced in Annex I. 5. At the request of the Council, a meeting of the Ad hoc Panel on Fine or Flavour Cocoa took place in September 2010 at Bloomsbury House, Bloomsbury Square, London. The Panel deliberated on each of the countries listed in Annex C of the Agreement, considering in each case the specific conditions in the country related to production, export deliveries, quality assessment and traders and chocolate manufacturers confidence in the origin of the fine or flavour cocoa. The Panel agreed on the percentages of exports of fine or flavour cocoa and provided comments and remarks on each of the countries listed under Annex C. The recommendations made by the Panel were adopted by the ICCO Council at its 83 th regular session in March The Council recognized 17 countries as being exporters of fine or flavour cocoa. Of these, nine were classified as exclusive exporters of fine or flavour cocoa (Bolivia, Costa Rica, Dominica, Grenada, Jamaica, Madagascar, Mexico, Saint Lucia and Trinidad & Tobago). The others were classified as part-exporters of fine or flavour cocoa

3 Page 2 (Colombia, The Dominican Republic, Ecuador, Indonesia, Papua New Guinea, Peru, São Tomé and Principe and Venezuela), as listed in the last page of Annex I. THE FINE OR FLAVOUR COCOA MARKET 6. The international manufacturing industry recognizes three types of cocoa beans used in chocolate production: the noble Criollo, the common Forastero and a hybrid between the two, the Trinitario. Historically, Criollo cocoa beans were predominant in the world market around 200 years ago. However, this situation has changed as a result of the outbreak and fast spread of cocoa pests and diseases, leading to a dramatic decline in production. Criollo cocoa beans are characterized by their distinct reddish colour, with equally distinctive complex flavours ranging from caramel, nuts, citrus and red fruits. Trinitario cocoa beans are a hybrid between Criollo and Forastero cocoa and originated in Trinidad & Tobago. Their flavour profile is characterized by spicy, earthy and fruity flavour notes. Forastero cocoa beans are the most widespread cocoa beans found in the market and are generally used to produce bulk chocolate. Forestero beans have a typically strong, bitter, acidic flavour profile. 7. Chocolate manufacturers classify cocoa beans in two broad categories: fine or flavour cocoa beans and bulk or ordinary cocoa beans. Generally, fine or flavour cocoa beans are produced from Criollo or Trinitario cocoa tree varieties, while bulk (or ordinary) cocoa beans come from Forastero trees. There are known exceptions to this generalization; the Nacional Arriba cocoa trees in Ecuador are considered to be Forastero type trees, however they are recognized as premium fine or flavour cocoa beans and are used in high-end niche markets. By contrast, cocoa beans from Cameroon, produced by Trinitario type trees are to date considered to be bulk cocoa beans. 8. Production of fine or flavour cocoa was predominant at the beginning of the 20 th century, accounting for 40-50% of the total world production. However, this situation has changed significantly, with a global expansion focused specifically on bulk cocoa, in addition to the susceptibility of both Trinitario and Criollo cocoa trees to pests and diseases. At present, fine or flavour cocoa accounts for approximately 6%-8% of world cocoa production only. 9. At present, Latin America and the Caribbean produce almost 80% of the worlds fine or flavour cocoa. In the region, Ecuador is the largest producer and exporter of fine or flavour cocoa, with Nacional Arriba cocoa beans accounting for approximately 54% of total fine or flavour production. The Dominican Republic and Peru have recorded similar levels of production of fine or flavour cocoa over the last three cocoa seasons, coming second and third in the region, respectively. With the exception of The Dominican Republic, the Caribbean has experienced little progress in increasing the supply of its unique cocoa beans. At present, initiatives are underway in Jamaica and Trinidad and Tobago to build capacity among cocoa farmers and increase outputs of fine or flavour cocoa beans. 10. Consumption trends over recent decades have contributed significantly to the decline of fine or flavour cocoa. There was a general shift in consumer demand away from solid products towards filled products containing other ingredients with stronger flavours such as nuts, cream, etc. This shift in demand reduced the dependency of the aromatic and flavour characteristics of fine or flavour cocoa. At present, chocolate manufacturers use fine or flavour cocoa beans in traditional recipes, mainly for a limited number of expensive, up-market finished products. Recently, the number of small, high-end

4 Page 3 independent chocolate makers in developed consuming markets has been growing significantly, contributing in turn to the increase in demand for fine or flavour cocoa. 11. Most major chocolate manufacturers have premium quality chocolate products in their range, which require fine or flavour cocoa from specific origins in their recipes for the distinct taste or colour of their chocolate. The traditional cocoa consuming countries of Western Europe (Belgium, France, Germany, Italy, Switzerland and the United Kingdom) as well as Japan are the main consumer markets for fine or flavour cocoa, while the United States uses this type of cocoa, to a lesser extent. Some countries in Latin America also have a large domestic market for the use of fine or flavour cocoa. 12. The market for fine or flavour cocoa is distinct from the bulk cocoa market. It is considerably smaller and highly specialized, with its own supply and demand characteristics. In general terms, the fine or flavour cocoa value chain is relatively shorter and more transparent compared with the value chain of bulk cocoa beans. Farmers producing fine or flavour cocoa usually sell their cocoa beans directly to a specialist agent from specific chocolate companies, or, as is the case with many fine or flavour producing countries, through their cocoa industry boards or cooperatives. In recent times, manufacturers have been more inclined to purchase fine or flavour cocoa beans due to their closer link to sustainability. The shorter supply chain and the close relationship between the producer and buyer allows for a more direct and mutual interest in sustainability from both parties. 13. The price received is determined by the supply-demand balance for that particular origin and type of cocoa, with the quality and flavour requirements of the consumer being the primary considerations. Short-term factors influence the offers and bids in this small market with few participants, and hence the price obtained is highly variable. Nevertheless, fine or flavour cocoa normally commands a premium over London and New York terminal markets. 14. In recent decades, the shift in consumer demand for high quality chocolate has provided a brighter future for the fine or flavour cocoa market. Fine or flavour cocoa is used mainly to manufacture dark chocolates with a higher cocoa content (60-80%) and single origin chocolates. This new consumption trend requires the use of high quality fine or flavour cocoa where the taste and quality of the beans is very important. Recent studies have shown that, as with wine and coffee, the taste of cocoa beans is highly influenced by region, and can also vary from season to season. Other stages in the process such as farming practices, post-harvest processes, shipping and storage all affect flavour and quality attributes. 15. The renewed increase in demand for fine or flavour cocoa beans has witnessed an increase in the premiums for these types of cocoa beans. From , the price premiums for fine or flavour cocoa rose significantly, reaching record levels. However, this situation was short lived as demand for premium chocolate declined with the deterioration of the global financial and economic environment. Indeed, the price premiums for fine of flavour cocoa faded, as companies focusing on the premium market had difficulty in meeting their initial growth targets. 16. The premiums for fine or flavour cocoa tend also to vary over time, as periods with ample availability of bulk cocoa beans tend to lead to higher price premiums for fine or flavour cocoa, whereas the premium tends to decline in periods of short supply of bulk cocoa. Indeed, should there be a surplus of bulk cocoa on the market, the bulk cocoa price is expected to fall while demand for fine or flavour cocoa for blending is expected to rise. Although demand and price fluctuations on the bulk

5 Page 4 cocoa market affect the fine or flavour market directly, the price for fine or flavour cocoa is established by the supply-demand balance based on origin, type, quality, and flavour requirements, as well as reputation and reliability. This is becoming also the case for some limited bulk origins, the markets of which are becoming partially segmented from other origins, partly as a result of the demand for single origin chocolate. Consequently, general price information may not always be a sufficient variable to conclude on the status of the cocoa beans, being either bulk or fine or flavour cocoa. 17. Usually, a combination of criteria is used to assess the quality of fine or flavour cocoa. These include the genetic origin of planting material, the morphological characteristics of the plant, the flavour characteristics of the cocoa beans produced, the chemical characteristics of the cocoa beans, the colour of the cocoa beans and nibs, the degree of fermentation, drying, acidity, off-flavours, percentage of internal mould, insect infestation and percentage of impurities. However, the measurement of some of these criteria is subjective and does not establish objectively that the cocoa in question has the characteristics of fine or flavour cocoa. RECENT WORK PERFORMED BY THE ICCO SECRETARIAT ON FINE OR FLAVOUR COCOA 18. From 2001 to 2006, the ICCO Secretariat, under the leadership of the National Agricultural Institute of Agriculture of Ecuador (INIAP) implemented a project to Establish the Physical, Chemical and Organoleptic Parameters to Differentiate between Fine/Flavour and Bulk Cocoa. The project, implemented in Ecuador, Venezuela, Trinidad & Tobago and Papua New Guinea, aimed to develop the capacity to adequately differentiate between fine and bulk cocoa, thus improving the marketing position of fine or flavour cocoa. The specific objectives of the project were to establish physical, chemical and organoleptic parameters enabling the evaluation of cocoa quality in relation to genotype and environment, and to disseminate selected parameters, methodologies, standards and instruments to be used in the evaluation of cocoa quality. 19. One major outcome of the project was the identification of chemical compounds closely related to the physical quality of the beans (fermentation and drying) and also to the origin of the cocoa beans. The project concluded that the theobromine/caffeine ratio proved to have consistently good discrimination power to segregate fine or flavour from bulk cocoa. The results of the project provided sufficient technical elements to be used as parameters in developing a quality control tool and also, a system to certify the geographical origin of the cocoa beans. In view of these promising results, the ICCO Secretariat initiated the formulation of a follow-up proposal in close collaboration with participating institutes, most notably with the University of The West Indies in Trinidad & Tobago. 20. In 2012, the ICCO Secretariat submitted a project proposal to the then ICCO Executive Committee on Improving the Marketing Competitiveness of Fine or Flavour Cocoa. This project proposal came about as a result of the implementation of the ICCO/CFC project on Establishing the Physical, Chemical and Organoleptic Parameters to Differentiate between Fine/flavour and Bulk Cocoa. The overall objective of the new project was to improve the marketing competitiveness and exploit the market potential of fine or flavour cocoa origins. 21. Following the approval of the proposal by the ICCO Council in March 2012, the ICCO Secretariat circulated a summary of the project among academics, research institutes and the processing industry in Europe for comments and observations. It was highlighted that the proposed methodology, using NIRS technology to establish a quality control system, was a powerful tool that

6 Page 5 could help to identify the attributes related to the genetic origin of a product. However, the proposal was deemed to be too research oriented and it was considered that more commercial components should be added to the proposal. The ICCO Secretariat has therefore decided to review the proposal to take account of the comments received. The aim of this project will remain to improve the marketing competitiveness of fine or flavour origins, and work on a new proposal will commence in early INFORMATION ON THE COUNTRIES LISTED IN THE REVISED ANNEX C OF THE ICA, This section provides statistical information on the countries listed in the revised Annex C of the ICA, 2010, commenting on the supply of fine or flavour cocoa in the major fine or flavour cocoa producing/exporting countries. The comments made are based on the discussions of the 2008 and 2010 Panels and on information collected by the ICCO Secretariat on this matter. In Annex II, statistics on production and exports of cocoa beans are provided for each of the 17 countries listed in the revised Annex C of the ICA, Additional statistical information, including unit export values (UEV), is available for The Dominican Republic, Ecuador, Papua New Guinea, and Venezuela. Unit values for European and U.S. imports from selected countries and their respective volumes for the 2011/2012, 2012/2013, 2013/2014 cocoa years and for the October 2014 March 2015 period are contained in Annex III. Due caution should be exercised in interpreting these unit import values, as the associated volumes may be rather small and bean supplies from a particular origin may be very heterogeneous. Bolivia 23. Bolivia is one of the smallest cocoa producing countries in South America, with an estimated production of 2,000 tonnes in the 2013/2014 season. Exports of cocoa from Bolivia are also considerably small, yet very specialized. The total volume of exports during the 2012/2013 cocoa season was 283 tonnes. Europe is the main destiny for Bolivian cocoa beans, with Germany, Switzerland, Italy and Liechtenstein being the main markets, followed by the US and Japan. The genetic origin of most of the cocoa found in Bolivia is considered Upper Amazon Forasteros, which has unique flavour and aroma attributes, similar to the Ecuadorian Nacional. Cocoa beans from the Alto Beni region are sought for the specialized high-end chocolate industry, while several small/medium manufacturers include cocoa beans from Bolivia in their product range. While the 2008 Panel did not consider Bolivia to be a fine or flavour producing country, the 2010 Panel acknowledged that small quantities of cocoa exported after 2008 were all fine or flavour, and recommended establishing the country as an exclusive exporter of fine or flavour cocoa. Colombia 24. In the mid-1990s, Colombia started exporting small quantities of cocoa beans, whereas prior to that time, all of Colombia s production had been consumed internally. ICCO statistics show that Colombia exported 5,946 tonnes of cocoa beans during the 2013/2014 season. The 2008 Panel indicated that all cocoa exported from Colombia received a premium and was definitely considered to be fine or flavour cocoa by chocolate traders and manufacturers. However, the 2010 Panel reviewed the situation and recommended classifying Colombia as a partial exporter of fine or flavour cocoa due to recent fermentation issues, as exports had increased slightly. Over the last six years, the Ministry of Agriculture has collaborated with the private sector in implementing a programme which aims to improve cocoa productivity and quality through the provision of improved planting material, capacity

7 Page 6 building on recommended post-harvest practices and the provision of infrastructure for fermentation and drying. Costa Rica 25. The cocoa sector in Costa Rica continues to be relatively small, with an average output of 600 tonnes per year. There are 2,229 registered cocoa farmers in the country, distributed among 4,543 hectares. Following the decline of the cocoa sector at the end of the 20 th century, the sector has received renewed interest from producers due to the new market outlook, in addition to the release of improved planting material which is resistant to pests and diseases and contains the desired flavour characteristics. The new varieties released by CATIE, namely CATIE R1, CATIE R4 and CATIE R6, have been recognized for their good flavour attributes in international tasting contests. From the 2011/2012 season onwards, as shown in Table 9, cocoa beans from Costa Rica tend to receive a significant price premium in Europe, compared with origins from Côte d Ivoire and Ghana. In the US market, the price premium over these origins is even larger, with the exception of the 2013/2014 season, as shown in Table 10. The 2010 Panel recommended establishing the country as an exclusive exporter of fine or flavour cocoa. Dominica 26. Cocoa production in Dominica remains very small, with an average production of 150 tonnes per year over the last five years. Despite these low volumes, demand for higher quality dark chocolates has provided incentives for their cocoa producers. Cocoa from Dominica remains of Criollo and Trinitario origin. At present, there are a handful of local manufacturers processing cocoa beans in Dominica, with their chocolates aimed at the tourism industry and local consumption. There have been no records of cocoa exports from Dominica since the 2012/2013 season, as presented in Table 9, due mainly to the increase in local processing. The 2010 Panel recommended establishing the country as an exclusive exporter of fine or flavour cocoa, as there was no indication that any cocoa exported did not have these attributes. The Dominican Republic 27. Over 90% of the production of cocoa beans from The Dominican Republic is exported, while the remaining percentage is processed locally prior to export or local consumption. It should be noted that most of the organic certified cocoa beans were exported to European countries. In Europe, cocoa beans from The Dominican Republic tend to receive a significant price premium compared with origins from Côte d Ivoire and Ghana (except during the 2011/2012 season, compared to the Ghanaian origin), as shown in Table 9. In the US market, cocoa from The Dominican Republic received a significant price premium over those two origins (except during the 2011/2012 season compared to the Ghanaian origin), as shown in Table The meeting of the 2010 Panel discussed the request from The Dominican Republic to be recognized as a producer of fine or flavour cocoa, with 70% of its cocoa exported requested to be considered as fine or flavour cocoa. The delegation of The Dominican Republic reported that the country had undertaken large investments to establish new cocoa driers and fermentation facilities, increasing the capacity from 12,000 to 32,000 tonnes of cocoa beans. In addition, The Dominican Republic had set up three new quality control laboratories to ensure that cocoa bean exports adhered to international quality standards. Experts from the Panel recognized that the country had a sound post-harvest infrastructure thanks to significant investments made in dryers, fermentation

8 Page 7 capacity and quality control. Despite these efforts, a decline in the exports of Hispaniola cocoa due to its lower demand from international buyers (as it fetched a significant price premium) led the Panel to recommend maintaining the country as partially exporting fine or flavour cocoa, with a share of 40%. Ecuador 29. Ecuador is the main fine or flavour cocoa producing and exporting country in the world. To obtain the most reliable picture on the world fine or flavour cocoa bean market, it is essential to have consistent information regarding Ecuador. There are two varieties of cocoa beans produced nationally: the Nacional cocoa, classified by quality (ASSPS, ASSS, ASS, ASN, ASE) and the CCN-51 variety. The highest grade (ASSPS) weighs grammes per 100 beans and is guaranteed to have at least 85% of fermented beans (brown colouration). The INEN 176 technical norm establishes the classification and quality requirements to be fulfilled by beans on post-harvest characteristics and the criteria that must be applied for their classification. Table 2 in the Annex shows some of these requirements. The INEN 176 norm was recently updated; the maximum accepted moisture content of the beans was reduced from 7.5% to seven per cent. 30. The meeting of the 2008 Panel discussed the problem of mixing between Nacional Arriba cacao beans and CCN-51 cocoa beans. Experts from Ecuador provided a detailed description of activities implemented in the country to address quality issues. A description was provided in relation to the organoleptic attributes of the Nacional Arriba cocoa beans. In addition, the delegation from Ecuador explained the programmes that had been implemented at national level on quality improvement, in particular training on recommended post-harvest practices. Information was also provided in relation to the introduction of Ministerial Decision No. 006 of July 2005, which prohibits the blending of Nacional and CCN-51 cocoa beans. Panel experts expressed the view that, although considerable efforts had being undertaken to address the issue of mixing, the problem persisted. The Panel noted that more work was required to ensure that the Ministerial decision was enforced more effectively. After deliberations, the Panel recommended to maintain the status quo of the percentage established under the International Cocoa Agreement, 1993 (75%). 31. The Panel met in 2010 to review the list of countries under Annex C. The presentation made by the Ecuadorian delegation focused on the efforts that had been undertaken by the Ecuadorian authorities to avoid the blending of Arriba Nacional with CCN-51 cocoa beans. The presentation highlighted government policies and institutional measures relating to the quality of Arriba Nacional cocoa, measures implemented to develop a national quality control and certification system for this type of cocoa, measures to promote, enhance and provide technological support for the production of Arriba Nacional cocoa as well as ongoing research to address the technical problems affecting faring practices and cocoa quality. The Panel acknowledged that considerable efforts had been made to address the issue of blending and to reposition Arriba Nacional cocoa in the international market. However, the Panel also acknowledged that there was a considerable increase in the exports of CCN-51 variety, reaching well over 20% in 2008 and In view of this increase of CCN-51 exports, the Panel recommended to maintain the status quo of the percentage established under the International Cocoa Agreement, 2001 (75%). 32. To assist the Panel in differentiating between fine or flavour cocoa and bulk cocoa in Ecuador, this report contains some statistical information on market prices and destination. Table 3 in the Annex provides information on Ecuadorian exports of cocoa beans by variety and quality as well as

9 Page 8 the corresponding unit export values (UEV). It shows how the market values the various Ecuadorian qualities/varieties of cocoa beans and the market share of each variety/quality as a percentage of total Ecuadorian exports. Information provided in Table 3 shows that, since 2010, the share of exports of the CCN-51 variety has experienced an increase, from about 19% in 2010 to 35.8% in 2014, but shrinking in the first half of 2015, to 29%. Table 4 provides information on Ecuadorian exports of cocoa beans by destination and the corresponding unit export values. It shows the demand for Ecuadorian beans by variety/quality from consuming countries in From this Table, it can be concluded that, broadly speaking, the market for Ecuadorian cocoa exports can be divided into two parts: - the European and Japanese markets which import the finest grade of the Nacional beans (ASSS and ASS); - the USA and other countries which import the lowest grade of the Nacional beans (ASE) and the CCN-51 variety. 33. This finding is confirmed in Tables 9 and 10 which show that U.S. unit import values (UIV) of Ecuadorian cocoa are lower than European unit import values of Ecuadorian cocoa, part of the difference being the lower costs of shipment of cocoa from Ecuador to the United States than to Europe. It should be noted that, from the 2011/2012 to 2013/2014 cocoa seasons, the UIV for cocoa beans originating from Côte d Ivoire was marginally lower compared with Ecuadorian origins for the U.S market. Ghana s UIV was higher than Ecuador for the 2011/2012 and 2012/2013 seasons, while Ecuadorian UIV recorded an increase over the Ghanaian origin during the 2013/2014 season in the U.S market. In the European markets, the UIV for Ecuadorian cocoa was higher compared with cocoa beans from Côte d Ivoire. With the exception of the 2011/2012 season, the UIV for Ghanaian origins was lower than the Ecuadorian origin, as shown in Table Chart I in the Annex shows the difference between the spot price in New York (Ex-dock New York) of the Ecuadorian ASS, ASE and CCN-51 quality. It is worth noting that the Ecuadorian ASS and ASE received high premiums in relation to the New York spot price from 2010 up to mid- 2011, whereas the premiums have decreased sharply since then. Indeed, since January 2012, the premium paid for ASS, ASE and CCN-51 has been considerably reduced compared to the New York spot price. Grenada 35. Over the last few years, Grenada s cocoa production has increased considerably, averaging at 800 tonnes per year. Although still relatively small in terms of production, Granada has become a global role model in the production of socially responsible, environmentally friendly, bean to bar, organic dark chocolate. Two small, yet highly specialized, chocolate manufacturers have been established locally, with chocolate exports reaching specialized, high-end niche markets in Europe and in the USA. As shown in both Tables 9 and 10, cocoa from Grenada tends to receive a large premium compared with origins from Côte d Ivoire and Ghana. Both the 2008 and 2010 Panels recognized the high quality of the cocoa beans exported from Grenada. Indonesia 36. Indonesia remains the third largest cocoa producing country in the world, with an estimated production of 375,000 tonnes during the 2013/2014 cocoa season. Indonesia is known for producing bulk cocoa beans, sold at a discount due to the poor fermentation practices. Despite this reputation, a small percentage of cocoa produced in East Java is considered to be fine or flavour. In this region,

10 Page 9 80% of the fine or flavour cocoa is produced at the PTPN XII Banjarsari estate, owned by ICCRI, while the other 20% is distributed among small and medium cocoa farmers. Although cocoa production in Indonesia has experienced a decline over the last years, the Java region has maintained its output. Rehabilitation programmes using top grafting and new plantations with top grafted seedlings have been undertaken in the East Java province, where most fine or flavour cocoa is located. The 2008 and 2010 Panels recommended maintaining the one per cent (1%) status quo for the country. Jamaica 37. The Jamaican cocoa sector is still considered to be small, with an average output of 500 tonnes per year. Jamaica has experienced periods of uncertainty due to the lack of leadership within the cocoa sector, particularly as the national institutions in charge of managing the sector were left aside to encourage other sectors. In 2004, Jamaica experienced its lowest ever cocoa output and this situation has been prevalent since then. In 2008, Jamaican cocoa farmers sought to organize themselves to create the Jamaican Cocoa Farmers Association (JCFA). JCFA is supporting its members through a fund which has been set up to build capacity in areas such as fermentation, productivity, community base management structures for processing facilities and rehabilitation of old cocoa plantations. Furthermore in 2009, the Ministry of Agriculture appointed the Cocoa Industry Divestment Committee with a view to identifying key issues affecting the cocoa in Jamaica and established a programme to revamp the sector. The main and fundamental problems of the cocoa industry currently are the legal framework and the ability of the cocoa farmers to obtain a better farm gate price vis-à-vis the open market price for exclusive fine flavoured cocoa beans. 38. In Europe and in the United States, cocoa beans originating from Jamaica tend to receive a large price premium compared with origins from Côte d Ivoire and Ghana, as shown in Tables 9 and 10. The 2010 Panel indicated that some quality problems had been reported. However the Panel recognized the new initiatives that were underway to improve quality and recommended maintaining Jamaica as 100% exporter of fine or flavour cocoa. Madagascar 39. Madagascar has built a reputation over the last decades as a source of some of the worlds finest cocoa beans. With a total output of 8,400 tonnes of cocoa beans during the 2013/2014 season, Madagascar remains the largest producer and exporter of fine or flavour cocoa in Africa. Recently, small and medium chocolate manufacturers have set up operations in the island, which has increased the profile of its fine cocoa. Madagascar cocoa beans have commanded a very high premium in the U.S and the European markets, as shown in Tables 9 and 10. The 2010 Panel estimated that 100% of the cocoa beans exported from Madagascar were of a fine or flavour cocoa quality. Mexico 40. Mexico s cocoa sector has experienced a decrease in production over the last decade as a result of the expansion of crops that were considered to be more profitable, such as palm oil and corn. This has increased the dependence of the country towards imported beans in order to satisfy local demand. The crop is grown on 61,344 ha that are distributed mainly in the southern states of Tabasco (66.9%) and Chiapas (32.7%), representing a direct source of income for nearly 41,000 smallholder cocoa farming units. Cocoa bean production in the 2013/2014 season reached approximately 30,000 tonnes. According to an evaluation of the cocoa sector implemented by the University of Chapingo, the

11 Page 10 predominant cocoa genetic material in Mexico is Trinitario (74.6%) followed by Forastero (19.2%) and Criollo (7%). An analysis of the cocoa value chain in Mexico highlighted four priority areas to revitalize the sector: a) farm rehabilitation; b) improvement of quality; c) cocoa renewal and; d) enhancement of the Mexican fine or flavour cocoa sector. Rehabilitation of cocoa farms and establishment of a breeding programme are currently the priority areas. The participatory plant breeding development in Mexico includes the selection and conservation of Criollo white almond materials, which have the flavour and aroma appreciated in the international markets. The meeting of the 2008 Panel did not consider the inclusion of Mexico in Annex C due to the lack of information available about the country s exports. However, the 2010 Panel indicated that, although only a handful of the country s output was exported, the beans were all fine or flavour and therefore the country was included in Annex C as an exclusive exporter of fine or flavour cocoa. Papua New Guinea 41. Over the last three years, just over 70% of Papua New Guinea s cocoa exports have been exported to South-East Asia, with Malaysia being the largest buyer, followed by Indonesia and Singapore. Cocoa beans from Papua New Guinea processed in this region are mixed with lower, unfermented beans from Indonesia to improve the overall quality of the end-product. Indeed, Europe recognizes the quality of this origin, which commands a premium compared with cocoa beans from Côte d Ivoire and Ghana, as shown in Table 9. However, in the U.S. market, Papua New Guinea seems to receive only a relatively small premium compared with cocoa beans from Côte d Ivoire and Ghana, as indicated in Table Authorities from The Cocoa Board of Papua New Guinea and The Cocoa and Coconut Institute of Papua New Guinea have been working closely with the cocoa sector to address the problems related to quality. Work has focused on improving cocoa farmers knowledge of post-harvest practices, while providing the necessary infrastructure for fermentation and drying to farmers cooperatives and groups. The 2010 Panel noted that a small percentage of cocoa exported from Papua New Guinea had a smoky taste and, as such, the country could not be considered as an exclusive exporter of fine or flavour cocoa. The Panel did acknowledge the fact that the vast majority of cocoa exported had fine or flavour attributes and therefore recommended increasing the share of cocoa exported as being fine or flavour type to 90%. Peru 43. The cocoa sector in Peru has experienced significant changes over the last decade, due to renewed interest from cocoa producers and authorities in the country. Research at ground level has allowed the identification of a wide range of cocoa varieties in the Peruvian amazon with great commercial potential. Cocoa produced in Peru is characterized by its aromatic notes and high levels of fat content. Indeed, the joint efforts by cocoa stakeholders, government agencies and international organizations have brought about an increase in production to 76,000 tonnes for the 2013/2014 cocoa season. Tables 9 and 10 show the price premiums for Peruvian cocoa beans have been slightly above those commanded by Côte d Ivoire and Ghana. The 2010 Panel highlighted that a significant share of the cocoa recently planted in Peru was of CCN-51 variety. The Panel recommended classifying the country as a partial exporter of fine or flavour cocoa, with a share reduced from 100% to 90% due to rejections from importers in relation to fermentation issues.

12 Page 11 Saint Lucia 44. Saint Lucia cocoa production remains small, with a total average output of 100 tonnes per year. Despite producing small amounts of cocoa, its reputation as a source of fine or flavour cocoa has increased with high-end chocolate manufacturers using cocoa beans from Saint Lucia in their range of products. In Europe, cocoa beans originating from Saint Lucia tend to receive a large price premium compared with origins from Côte d Ivoire and Ghana, as shown in Table 9. However, this situation is not reflected in the U.S. market. São Tomé and Principe 45. Cocoa exports from São Tomé and Principe have been steady over the last five years, with an average output of almost 3,000 tonnes of cocoa per year. Most cocoa produced in the country is exported to Europe, with consistent premiums paid for this origin compared with origins from Côte d Ivoire and Ghana, as shown in Table 9. The 2010 Panel recommended maintaining the country s status as a partial exporter of fine or flavour cocoa, with a 35% share. Trinidad & Tobago 46. Trinidad & Tobago continues to be recognized as an exclusive producer of fine or flavour cocoa, with all cocoa varieties planted in the country being of the Trinitario type. Traditionally, cocoa beans from Trinidad & Tobago command one of the highest premiums in the US and European markets, compared with origins from Côte d Ivoire and Ghana, as shown in Tables 9 and 10. Recently, the University of The West Indies, which holds the largest collection of cocoa varieties in the world, was appointed to coordinate the work under the newly founded International Fine Cocoa Innovation Centre, which aims to enhance and improve the agricultural and processing cocoa sector of the Caribbean. The 2010 Panel recognized the very high quality of the cocoa beans exported from Trinidad & Tobago and maintained the level of 100%. Venezuela, Bolivarian Republic of 47. Venezuela cocoa beans continue to be regarded as one of the best qualities among fine or flavour cocoa beans. Its traditional Carnero Superior variety, in addition to the White Porcelana beans are highly sought by specialized chocolatier in Japan, Europe and The United States. Japan continues to be the main buyer of Venezuelan cocoa beans, with nearly 40% of exports accounting for the Japanese market. Germany and The Netherlands are the main buyers in Europe, as presented in Table 6. Premiums for Venezuelan cocoa beans in Europe are high, while there has been a slight reduction since the 2011/2012 season, as shown in Table 9. Price premiums in the US market were reduced by 50% over the same periods, as shown in Table 10. The 2010 Panel highlighted the fact that, at the time, most of the cocoa exported from Venezuela was of fine or flavour type and therefore recommended to increase the share of the cocoa exporter as being of the fine or flavour type compared to the 2008 Panel. Some of the beans exported were reported as being only partially fermented, resulting in the Panel recommending a share of 95% of cocoa exports as being of the fine or flavour variety.

13 Page 12 INFORMATION ON COUNTRIES NOT LISTED IN ANNEX C OF THE ICA, This section provides statistical information on the cocoa sectors of Nicaragua and Panama. The latter country, which is not listed in Annex C of the ICA, 2001, submitted its case to the ICCO Secretariat for consideration by the 2010 Panel for inclusion in Annex C. Nicaragua 49. The Nicaragua cocoa sector has experienced a considerable growth over the last decade, with the renewed interest from both farmers and government officials in revitalizing the sector. At present, Nicaragua is the largest producer and exporter of cocoa beans in the Central American region. During the 2013/2014 cocoa season, Nicaragua exported some 2,128 tonnes of cocoa, with almost 40% of all exports to Germany, as shown in Table 7. The majority of cocoa planted in Nicaragua is of Criollo or Trinitario origin, with some areas having small plantations of Forastero trees. Exports of Nicaraguan cocoa are still small but they are aimed at specialized niche markets. The premiums paid for Nicaraguan cacao are high in both the U.S and European markets, as seen in Tables 9 and 10. Indeed, several small chocolate makers in Europe using Nicaraguan cocoa beans have won awards for their quality. The 2010 Panel acknowledged the presence of Criollo and Trinitario varieties but highlighted the need for better post-harvest practices in the country. The Panel included Nicaragua in the list of countries with the potential to produce and export fine or flavour cocoa in the near future. Panama 50. Cocoa production in Panama is still considerably small, yet there is a growing interest in the country among small and medium farmers to expand production. The total exports during the 2013/2014 season were 813 tonnes, with Spain (37.1%), Germany (21.6%) and The Netherlands (15.6%) being the main destinations for exports, as indicated in Table 8. Over the last five years, new cocoa plantations have been set up in the north-eastern region of Panama. These plantations are using Trinitario-based cocoa clones, which are recognized for their flavour attributes. Premiums paid for Panamanian cocoa beans have been relatively significant in both the U.S. and European markets, compared with origins from Côte d Ivoire and Ghana, as shown in Tables 9 and 10. Due to the lack of information on its exports, the 2010 Panel did not include Panama in the list of fine or flavour exporters.

14 Page 13 REVIEW OF ANNEX C OF THE INTERNATIONAL COCOA AGREEMENT, 2010 STATISTICAL ANNEX (English only) LIST OF TABLES AND CHARTS ANNEX I Classifications of fine or flavour cocoa producing countries under Annex C of the successive International Cocoa Agreements. ANNEX II Table 1 Decision of the 2010 Ad hoc Panel on fine or flavour cocoa Table 2 Ecuadorian quality requirements INEN 176 Table 3 Ecuadorian exports of cocoa beans by quality/variety Table 4 Ecuadorian exports of cocoa beans by destination, in 2014 Graph I Differentials for Ecuadorian cocoa beans Table 5 Exports of cocoa beans Papua New Guinea Table 6 Exports of cocoa beans Venezuela Table 7 Exports of cocoa beans Nicaragua Table 8 Exports of cocoa beans - Panama Table 9 Table 10 ANNEX III European Union imports of cocoa beans, selected countries US imports of cocoa beans, selected countries Note about mirror statistics: In this Annex, data on exports of cocoa beans from country A to country B and imports into B from A are presented. These two trade data, supposedly representing the same flow, show inevitably some discrepancies. Many of these differences can be largely explained by the following factors: Methodological differences: trade coverage, definition of partner country, different valuations in theory or in practice, particularly the difference between the fob and cif valuations. Time lag: the same operation can be recorded under a different reference period because of transport times or also because of information processing delays. Problems of currency conversion.

15 Page 14 ANNEX I CLASSIFICATION OF FINE OR FLAVOUR COCOA PRODUCING COUNTRIES Under Annex C of the successive International Cocoa Agreements of 1972, 1975, 1980 and 1986 (i) Exporting countries producing exclusively fine or flavour cocoa: Dominica Ecuador Grenada Indonesia Jamaica Madagascar Panama Saint Lucia Saint Vincent and the Grenadines Samoa Sri Lanka Suriname Trinidad & Tobago Venezuela (ii) Exporting countries producing fine or flavour cocoa, but not exclusively: Costa Rica - 25% Papua New Guinea - 75% São Tomé and Principe - 50%

16 Page 15 ANNEX I CLASSIFICATION OF FINE OR FLAVOUR COCOA PRODUCING COUNTRIES (cont d) Under Annex C of the International Cocoa Agreements, 1993 and 2001 (up to March 2005) (i) Producing countries exporting exclusively fine or flavour cocoa: Grenada Jamaica Panama Saint Lucia Saint Vincent and the Grenadines Samoa Suriname Trinidad & Tobago (ii) Producing countries exporting fine or flavour cocoa, but not exclusively: Colombia - 25% Costa Rica - 25% Dominica - 25% Ecuador - 75% Indonesia - 5% Madagascar - 50% Papua New Guinea - 25% São Tomé and Principe - 25% Sri Lanka - 25% Venezuela - 50%

17 Page 16 ANNEX I CLASSIFICATION OF FINE OR FLAVOUR COCOA PRODUCING COUNTRIES (cont d) Under Annex C of the International Cocoa Agreement, 2001 (Applicable from March 2005 to April 2008) (i) Producing countries exporting exclusively fine or flavour cocoa: Colombia Grenada Jamaica Madagascar Saint Lucia Trinidad & Tobago (ii) Producing countries exporting fine or flavour cocoa, but not exclusively: Ecuador - 75% Indonesia - 1% Papua New Guinea - 25% São Tomé and Principe - 35% Venezuela - 75% - 100% (iii) Producing countries exporting fine or flavour cocoa, but with no percentage provided: Costa Rica Dominica Peru

18 Page 17 ANNEX I CLASSIFICATION OF FINE OR FLAVOUR COCOA PRODUCING COUNTRIES (cont d) Under Annex C of the International Cocoa Agreement, 2001 (Applicable from May 2008 to September 2010) (i) Producing countries exporting exclusively fine or flavour cocoa: Colombia Costa Rica Grenada Jamaica Madagascar Peru Saint Lucia Trinidad & Tobago (ii) Producing countries exporting fine or flavour cocoa, but not exclusively: The Dominican Republic - 40% Ecuador - 75% Indonesia - 1% Papua New Guinea - 75% São Tomé and Principe - 35% Venezuela - 75% (iii) Producing countries exporting fine or flavour cocoa, but with no percentage provided: Dominica

19 Page 18 ANNEX I CLASSIFICATION OF FINE OR FLAVOUR COCOA PRODUCING COUNTRIES (cont d) Under Annex C of the International Cocoa Agreement, 2001 (Applicable from September 2010 onwards) (i) Producing countries exporting exclusively fine or flavour cocoa: Bolivia Costa Rica Dominica Grenada Jamaica Madagascar Mexico Saint Lucia Trinidad & Tobago (ii) Producing countries exporting fine or flavour cocoa, but not exclusively: Colombia - 95% The Dominican Republic - 40% Ecuador - 75% Indonesia - 1% Papua New Guinea - 90% Peru - 90% São Tomé and Principe - 35% Venezuela - 95%

20 Page 19 ANNEX II TABLE 1: DECISION OF THE 2010 AD HOC PANEL ON FINE OR FLAVOUR COCOA 3 year average total cocoa 3 year average total cocoa Council decision Exclusive Partly Countries production beans export (September 2010) 2011/ / / /14 (% of exports) (tonnes) (tonnes) Bolivia Costa Rica 2, x 100% 100% Dominica % Grenada Jamaica Mexico Madagascar Saint Lucia Trinidad and Tobago Colombia Venezuela , ,585 17, , ,254 5,679 x x x x x 100% 100% 100% 100% 100% 100% 95% 95% Papaua New Guinea 40,092 38,141 90% Peru Ecuador Dominican Republic Sao Tomé and Principle 68, ,167 70,082 2,733 32, ,085 64,890 2,717 x x x 90% 75% 40% 35% Indonesia 408, ,139 x 1% Grinder Source: ICCO

21 Page 20 Requirements ANNEX II TABLE 2: ECUADORIAN QUALITY REQUIREMENTS INEN 176 Unit Arriba cocoa variety ASSPS ASSS ASS ASN ASE CCN beans weight g Good fermentation (minimum) Light fermentation * (minimum) Total fermented beans (minimum) % *** % % Violet beans (maximum) % Slaty beans (maximum) % Mouldy beans (maximum) % Total (for 100 beans) % Defective beans (maximum) (analysis for 500 grams) % ** 1 Source: Norma Técnica Ecuatoriana NTE INEN 176. Acuerdo Nº de 18/IX/06. Ministerio de Comercio Exterior, Industrialización, Pesca y Competitividad Note: * Brownish or violet colour ** Flat beans permitted in ASE type *** Colour varies between brown and brownish violet ASSPS ASSS ASS ASN ASE Arriba Superior Summer Plantación Selecta Arriba Superior Summer Selecto Arriba Superior Selecto Arriba Superior Navidad Arriba Superior Época

22 Page 21 TABLE 3: ECUADORIAN EXPORTS OF COCOA BEANS BY QUALITY/VARIETY Exports (in % or tonnes) Unit Export Value (in US$/tonne) FOB Variety/quality Nacional (Arriba) cocoa ASE 37.7% 36.8% 39.6% 31.7% 37.0% 46.8% $ 2,625 $ 2,816 $ 2,518 $ 2,299 $ 2,797 $ 2,758 ASN 4.9% 0.3% 0.4% 0.5% 0.3% $ 2,990 $ 3,305 $ 2,434 $ 2,263 $ 2,999 ASS 30.5% 32.3% 22.2% 25.0% 20.1% 18.4% $ 3,023 $ 3,050 $ 2,379 $ 2,474 $ 2,941 $ 2,903 ASSPS 0.03% 0.001% $ 3,207 $ 2,863 ASSS 7.9% 7.7% 6.0% 5.3% 6.8% 5.8% $ 3,055 $ 3,248 $ 2,441 $ 2,553 $ 3,088 $ 2,923 Hybrid variety CCN % 22.8% 31.9% 37.5% 35.8% 29.0% $ 2,974 $ 2,740 $ 2,264 $ 2,358 $ 2,818 $ 2,763 Total 120, , , , , ,764 $ 2,965 $ 2,909 $ 2,402 $ 2,378 $ 2,854 $ 2,796 Note: Data for 2015 cover the period Jan June 2015 Source: ANECACAO TABLE 4: ECUADORIAN EXPORTS OF COCOA BEANS BY DESTINATION, IN 2014 Variety/quality Destination Europe Japan United Grand Others States Total ASE Volume, in tonnes 9,939 1,015 46,581 18,716 76,251 UEV, in US$/tonne $ 2,812 $ 2,789 $ 2,783 $ 2, $ 2,797 ASN Volume, in tonnes UEV, in US$/tonne $ 3,167 $ 2,891 $ 3, $ 2,999 ASS Volume, in tonnes 29, ,501 2,644 41,484 UEV, in US$/tonne $ 2,911 $ 3,281 $ 3,011 $ 3, $ 2,941 ASSS Volume, in tonnes 11,100 2, ,964 UEV, in US$/tonne $ 3,082 $ 3,094 $ 3,158 $ 3, $ 3,088 CCN-51 Volume, in tonnes 6,491 30,489 36,767 73,747 UEV, in US$/tonne $ 2,747 $ 2,833 $ 2, $ 2,818 Total Volume, in tonnes 56,858 3,117 87,181 58, ,011 UEV, in US$/tonne $ 2,909 $ 3,001 $ 2,827 $ 2, $ 2,854 Note: UEV: Unit Export Value Source ANECACO

23 Page 22 GRAPH I: DIFFERENTIALS FOR ECUADORIAN COCOA BEANS (EX-DOCK NEW YORK PRICES) - Monthly average - Source: KnowledgeCharts LLC, as at 22 July 2015